What is social investment and where does it fit in the spectrum of investment?

Tue 22 Mar 2016

A lot is being said and written about social investment. In March 2016, Rob Wilson, Minister for Civil Society rightly said ‘Social investment is growing. It will play an increasing role in how the sector will be funded and there is a role for all of us in achieving this. Social investment can accelerate the growth of new businesses, transform the impact of our public services and support stronger communities to tackle the social challenges that they face’.

So what is social investment?

This blog uses an internationally accepted framework of investment to set the scene and place social investment in context. My preferred analysis is to look at seven models; three financial investment, three social investment and one charity.

Financial investment models

A business may have little, if any, regard for the environment or wider society in the way the business operates. A business may mitigate risky practices and the effect of its activities on the environment and society, to protect its value. Or a business may follow enlightened practices in terms of the environment and society, to grow its value. All three business models seek a competitive financial return on investment.

Social investment models

In contrast to the financial investment models, a social investor seeks a blend of social and financial return to address society’s challenges, with a care for the environment. The financial return may be competitive for investors, at a modest discount to the market financial return or well below the market financial return; the final category would include business activities where a modest discount to market financial return is not achievable. All three models focus on high impact solutions for society (including the environment), along with a financial return.

The charity model

Donors and other funders of a charity are akin to investors in the charity. The investment usually brings no financial return to the donor or funder. The motivation for the investment is purely social, to support the charity in delivering high impact solutions for its beneficiaries and for wider society, with a care for the environment.

In subsequent blogs, I’ll look at where the social investment market is currently and where this market may be heading in the future.  I’ll also look at the Government’s strategy for social investment.

Like social media, the time for social investment has arrived and it’s here to stay!